Canada: Peering Through The Cloud - Cloud Computing: Many Benefits But There Are Some Legal Issues To Consider

While outsourcing the processing or hosting of information is not a new idea, as many companies are familiar with application service providers ("ASPs") and software-as-a-service ("SaaS"), "cloud computing" has become a catch-all phrase that represents the plethora of hosting and processing services available and delivered over the Internet.1 The growing popularity with consumers of online services as well as the entrance of some brand-name vendors with corporate offerings (such as Amazon's Elastic Compute Cloud ("EC2"), Google Apps and Microsoft's recent announcement that Office 2010 will be offered as a free online service), has brought increased awareness to this combination of grid and utility computing services.2 One study found that 69 per cent of Americans who use the Internet use some form of cloud computing, such as Hotmail and Gmail or online personal photo storage services.3

Cloud computing can be used by corporate clients to outsource, for example, data processing (such as massive database management or data mining), help desk management, CRM, word processing requirements and even all or a substantial portion of a company's IT infrastructure. Many of the above, when implemented in-house, require expensive infrastructure that are often not used at maximum efficiency. One flavour of cloud computing that may be particularly attractive to businesses engaged in sensitive industries or handling sensitive information is the "Private Cloud", whereby a business or other organization creates its own Internet-based data centre that is not generally available to the public.

With vastly improved features, usability and awareness, corporations and individuals are finding the siren call of cloud computing particularly compelling. While the benefits are many, the potential legal pitfalls that come with cloud computing must be considered.

First, some of the advantages that cloud computing offers:

  • Pricing: Some cloud providers' pricing models contemplate a monthly subscription fee while other vendors provide the services on a pay-as-you-go, utility-based model. For example, users pay for the volume of data stored or number of servers required.
  • Scalability: Cloud vendors often allocate resources to a user as needed (or requested), which has obvious benefits for both the cloud vendor and user: cloud vendors benefit greatly from economies of scale and the efficient use of their resources, while users benefit from the resulting flow-through cost savings as well as the availability, often on-demand in real-time, of vast and flexible resources that can suit their needs without having to worry about whether too much or too little was spent on in-house IT deployments.
  • Transparency: Users can typically see exactly how much they pay for their usage of specific services, whereas non-cloud vendors are often unwilling or unable to disclose how much a user is paying for each server used or gigabyte transferred.
  • Simple Purchasing: Though also a potential pitfall, many cloud computing services can be purchased over the Internet with a credit card and the services become available instantly. There is no need to issue a complicated request for proposal, but no opportunity to negotiate the terms of service.
  • Sensitive Data: For businesses whose employees travel frequently and use portable laptops, the risk of loss, theft or confiscation of sensitive information stored locally on these devices can be mitigated, to some extent, by using cloud applications and storing data in the cloud.

However, all that glitters may not be gold. Companies must tread carefully when considering cloud computing as there are a variety of potential legal issues that need to be considered before engaging a cloud computing vendor:

  • Privacy: Certain jurisdictions require personal information to remain within that jurisdiction's borders unless the receiving jurisdiction has comparable legal safeguards. For example, the EU Data Protection Directive only permits the transfer of personal data to non-EU nations that ensure an "adequate level of protection".4 Cloud computing architecture, by its nature, provides that vendors may process resources in or through a number of jurisdictions at any given time. While in certain circumstances the cloud vendor can offer to limit where a specific user's data is held, it may not be possible or practical. Users also need to consider the risk that their data may be disclosed to the government of the jurisdiction in which their data is held by the vendor, possibly without their knowledge or consent. For example, the USA PATRIOT Act permits the U.S. federal government to seek a court order for disclosure of electronic records, often without permitting notice to the user.5 From a Canadian perspective, a company thinking about outsourcing the processing or storage of personal information to a cloud vendor needs to consider applicable legislation (such as the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5 ("PIPEDA")), which may require:
    1. notice to the data subjects their information might be stored outside of Canada and their information may be accessed by governmental authorities according to the laws of that jurisdiction;6 and
    2. contractual obligations for the cloud vendor to safeguard personal information to the same extent as the company using the cloud services.7

Special considerations will apply if the prospective outsourcer is a federally regulated entity and therefore would have to comply with OSFI guidelines. The OSFI guidelines specify, among other things, that an outsourcing agreement is expected to point to a physical location where the outsourced activities are to take place; this requirement could make (non-private) cloud computing impractical.8 Additionally, the federal Bank Act, requires that certain records be stored in Canada.9

  • Foreign Governments: The autonomy of private or state-sponsored enterprises varies between jurisdictions. It is important for the user to conduct due diligence and, if doubts persist about the potential for governments to monitor or access the user's systems or information flow, be sure to insist on appropriate confidentiality, security and indemnification protections or consider seeking an alternate cloud vendor.
  • Export Controls: Given the multitude of locations from which cloud services may be provided by any one vendor, ensuring compliance with federal export controls may be difficult (where, for example, a company has sourced a software development platform in the cloud and the software to be developed contains encryption technologies subject to export controls).
  • Ownership: Care has to be taken to ensure cloud vendor and user rights in their respective intellectual property are clearly delineated. For example, many cloud services involve the provision of proprietary development tools by the vendor, which allows the user to create its own databases, software or other applications. In order to ensure that the user comes away with a product that can be utilized by or licensed to other parties, it is essential to determine to what extent vendor or other third-party components are incorporated. Similarly, where mission critical or enterprise business processes are involved, it is critical to make certain that appropriate business continuity plans and possibly source code escrow agreements are in place to anticipate a potential bankruptcy of the vendor or some other cessation of the vendor's services.

As well, cloud vendor standard form contracts are often drafted decidedly in the cloud vendor's favour. Whether cloud computing is sourced for simple data processing or for enterprise resource planning for mission critical business processes, close attention should be paid to the following provisions commonly found in such standard form contracts — particularly if the services are going to be purchased online without any negotiation (also known as "off-the-shelf" services):

  • Uptime: In July 2008, Amazon's S3 experienced an outage lasting more than seven hours that affected all U.S. customers, including the high-profile social networking site Twitter.10 While some cloud vendors will include representations of high-levels of uptime backed by service credits issued in the event of outages (such as Amazon), others provide representations of nearly guaranteed uptime while also disclaiming liability for unanticipated or unscheduled delays or outages. Where the vendor is unwilling to negotiate, users should have their own back-up systems and business continuity plans in place to address possible long-term outages by key vendors, which should contemplate redundant data storage and backup services.
  • Security: In July 2009, a hacker gained access to confidential documents stored on Google Apps by hacking a Twitter employee's official email account — which was hosted by Gmail.11 While it should be noted that access was apparently gained by the hacker as a result of poor password selection and protection by the victim, the incident serves as a reminder that sensitive information in the cloud can be vulnerable. Since vendors may not be forthcoming about their security measures and limitations of liability, in their standard form contracts, are often limited to the amount paid by the user or less, users may be out of luck if they suffer damages as a result of the loss or inadvertent disclosure of personal or sensitive information, or in the event of a security breach of the vendor's systems.
  • Monitoring: Many cloud vendors' standard form contracts include the right to monitor all data which, without the inclusion of appropriate confidentiality and indemnification provisions, should be a source of concern for users who wish to process sensitive business information in the cloud.
  • Varying Terms: Another common inclusion in cloud vendor standard form contracts is the ability of the vendor to modify the terms of the agreement, with such modifications deemed accepted by either continued use any time after the new terms have been posted on the vendor's website or after a certain stated time (e.g. 15 days after posting). An example of this is Apple Inc.'s recent modifications to the Terms of Service for its online service MobileMe. The notice provisions of the Terms of Service provide that notice of a change in the Terms of Service may be e-mailed, sent by regular mail or posted on its website. Apple recently added provisions related to its collection and use of customer information as well as adding a limitation of liability for any permanent cessation of the service.12 If Apple chose to only post these important changes to its website, they would only be noticed if the customer visited the MobileMe website, yet the changes would likely have legal effect.
  • Pay The Bills: The services agreement of one popular cloud vendor provides, in the event a user's account falls into arrears, the vendor has the right to terminate and suspend access to the services. Perhaps most importantly, the vendor has no obligation to retain such user's data, which may be "irretrievably deleted" after 30 days.

From this brief review of just some of the potential privacy issues in cloud computing, it is apparent that companies may encounter turbulence along the way.


The expanding and increasingly competitive marketplace of Internet-based outsourcing services that comprise the "cloud computing" lexicon provides vendors and users with lower overall costs of implementation thanks to economies of scale and greater scalability. However, both parties must be careful to ensure their interests are protected when entering into cloud computing arrangements, particularly those users purchasing off-the-shelf services subject to standard form contracts.

[Editor's note: Given the rapid developments in the field of cloud computing, please note that the article was originally authored in November 2009.]


1. For an overview of various cloud computing terminology and non-legal issues, see The Economist, "Special Report: Let it rise" (October 23, 2008), online:

2. Grid computing is the use of clusters of computers on a large scale to perform tasks that involve significant amounts of data and/or computer resources, while utility computing refers to the packaging of computing resources as a metered service.

3. John B. Horrigan, "Cloud Computing Gains in Currency" Pew Research Center, online:

4. See Council Directive 1995/46/EC at Article 25, online:

5. See Robert Gellman, Privacy in the Clouds: Risks to Privacy and Confidentiality from Cloud Computing (February 23, 2009): World Privacy Forum, online:

6. See Privacy Commissioner of Canada, "Outsourcing of e-mail services to U.S.-based firm raises questions for subscribers" (PIPEDA Case Summary #2008-394), online:

7. See Privacy Commissioner of Canada, "Canadianbased company shares customer personal information with U.S. parent (Case Summary #2006-333)", online:

8. See Office of the Superintendent of Financial Institutions, "Guideline B-10: Outsourcing of Business Activities, Functions and Processes" (March 2009), online: at subpara. 7.2.1(a).

9. See, e.g., Bank Act, S.C. 1991, c. 46 at s. 239, which requires certain records to be kept at the head office of the bank or at such other place in Canada as the directors see fit [emphasis added].

10. CenterNetworks, "Amazon S3 Down" (July 20, 2008), online:

11. Computerworld, "Twitter breach revives security issues with cloud computing" (July 27, 2009), online:

12. TOSBack, "Apple MobileMe Terms of Service" (June 18, 2009), online:

Reproduced with permission of the publisher from Internet and E-Commerce Law in Canada, Vol. 10, No. 9, January 2010.

About Ogilvy Renault

Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at

Voted best law firm in Canada two years in a row.
2008 and 2009 International Legal Alliance Summit & Awards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.